Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

Nov 17-20: The Safest Market Activity Now is Speculative Trading

Money indicated last week that the sane thing to do in troubled times is to trade multiple asset classes in wild, wacky, brief increments. As humorist Dave Barry would say, we swear we are not making that up.

Speaking of made up, the markets didn’t plunge Thursday the 20th because – holy smokes! – investors suddenly saw severe economic straits ahead, nor did they reverse course Friday the 21st and Monday the 24th because – woo hoo! – The Obama Administration spoke and people listened and the Fed threw a buoy to Citigroup. No, what happened is risk managers were comfortable with resets after volatility swaps expired on the 20th. How can we speak with such certainty about these things? The movement of money is as stark as a Saturday Night Live skit, though not nearly as good-humored.

Any real buying on dips, you ask? Rational money does still venture into the markets – but rather than buying dips it’s buying quantitative upticks. This behavior is the exact opposite of what we need to see to know our markets are once again safe. When value players follow the machines up and then quickly retreat with short-term profits if any can be had, conditions are bad. This may seem a keen sense of the obvious, we realize. But that's what's behind price and volume.

What to do, investor-relations folks? Emphasize your value-preserving traits. Focus on retail investors. Minimize expenditures relative to institutional outreach. And arm your management teams with facts that make them look cool to boards of directors during difficult times. You can do that by showing them how speculation and risk-management are behind valuations right now, and there is no management culpability for such things. To quote my long-time business partner “it is what it is.”

And now, if you’ll excuse me, I’ve got a giant list of Thanksgiving groceries to buy (doing our part to boost the economy). And we are indeed thankful and grateful, despite these troubled times, to live so well and with such joy. May Thanksgiving be full up with simple joy for all of you.

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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